U.S. ethanol’s premium to gasoline largest since 2011

Source: BY MICHAEL HIRTZER, Reuters • Posted: Tuesday, March 25, 2014

(Reuters) – U.S. ethanol futures climbed in the sixth straight session on Monday, expanding their premium to gasoline futures to the largest in 2-1/2 years as gridlock on the nation’s railroads continued to slow shipments of the grain-based biofuel, traders and analysts said.

Slow turnover of tanker cars has kept a lid on ethanol production this year, with the ethanol stockpile last week falling to the smallest since November and just above the lowest levels in records dating back to 2010.

Ethanol futures for April delivery finished 10 cents higher at $2.95 per gallon after earlier trading above $3 for the first time since July 2011. The closely watched ethanol-gasoline spread widened to as much as 10 cents premium ethanol, also the largest since 2011.

Gasoline futures eased 1 cent to $2.89 per gallon.

“It’s all rail logistics,” a Wisconsin ethanol trader said of the rising prices.

Nearly every gallon of gasoline sold in the United States contains about 10 percent ethanol. Rising prices for the biofuel were blamed for a 5-cent spike in gasoline prices during the past two weeks, according to the Lundberg survey released on Sunday.

Higher prices at the pump could keep lead to lower demand from drivers for gasoline and for higher biofuel blends such as E85, which contains 85 percent ethanol, said Mike Zuzolo, analyst at Global Commodity Analytics in Lafayette, Indiana.

“This type of premium in ethanol will take three to four weeks to get into the market as far as reduced overall demand for E10 and E85,” Zuzolo said.

Slow traffic on U.S. railways was also preventing traders from taking advantage of market opportunities. Cash ethanol in the U.S. Midwest was trading at about $3.20 per gallon while prices for prompt delivery at New York Harbor were $4 or more.

“The tankers in the upper Midwest is still an issue in the grains and energy markets – that’s hurting arbitrage,” Zuzolo said.